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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN & SHRI PAVAN KUMAR GADALE
The aforesaid appeal has been filed by the Revenue challenging the order dated 23rd August 2019, passed by the learned Income Tax Commissioner (Appeals)–26, Mumbai, deleting penalty of ` 1,18,200, imposed under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act") by the Assessing Officer which pertains to the assessment year 2011–12.
2 Shri Yusuf Ahmed Solanki
When the case was called for hearing, no one was present on behalf of the respondent assessee to represent the case. There is no application for adjournment of hearing either. Therefore, we proceed to dispose off the appeal ex–parte qua the assessee after hearing the learned Departmental Representative and on the basis of material available on record.
The grounds on which the present appeal has been preferred by the Revenue are as under:–
“1. Whether on the facts and in the circumstances of the case and in law, the IA. CIT(A) was correct in deleting the penalty of Rs. 1,18,200/ - levied u/s. 271(1)(c) of the Act as the penalty was levied on quantum additions made on account of bogus purchases, without appreciating that the onus was on the assessee to establish the genuineness of such purchases by producing such parties before the Assessing Officer and the assessee failed to discharge his onus? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in holding that the AO has estimated the income without appreciating that the AO has levied penalty, only after verifying the fact that the assessee evaded the taxes on quantum of additions made on account of bogus purchases and the assessee failed to establish the genuineness of such purchases? 3. Whether on the facts and in the circumstances of the case and in law, the IA. CIT(A) was correct in holding that assessee has neither concealed the particulars of income nor has it furnished inaccurate particulars of income, there being are no findings of the AO that the details furnished by the assessee in his return are found to be inaccurate or erroneous or false, without appreciating the fact that by resorting to bogus purchases/ accommodation entry, the assessee made an attempt to reduce the profitability and thereby attempted to avoid taxes, which in itself proves beyond doubt that assessee concealed particulars of income?”
3 Shri Yusuf Ahmed Solanki
Brief facts of the case are, the assessee being a proprietorship firm in the name and style of M/s. Sayco Enterprises, is engaged in the business as wholesaler and retailer in timber products. The assessee, for the year under consideration, filed its original return of income on 29th September 2011, declaring total income at ₹ 3,77,040. The Assessing Officer noticed that during the previous year relevant to the assessment year under consideration, the assessee had made purchases worth ` 1,17,60,320, and out of this purchase, an amount of ` 29,53,032, has been effected from M/s. Ronak Enterprises. Subsequently, on the basis of information received from the Investigation Wing of the Department, which revealed that the assessee had taken accommodation bill for purchase through the above party which was declared as hawala operator by Maharashtra Sales Tax Department, the case was re–opened by issuance of notice under section 148 of the Act. During the course of the assessment proceedings, in order to ascertain the genuineness of purchases made by the assessee, independent enquiries were carried out by the Department by seeking information under section 133(6) of the Act from the party M/s. Ronak Enterprises. However, the Assessing Officer received no response from the said party. The A.R. for the assessee, in response to the query raised by the Assessing Officer, made written submissions vide letter dated 28th January 2016. The Assessing Officer
4 Shri Yusuf Ahmed Solanki considered the submissions of the assessee, however, the same was not been found tenable and acceptable as the assessee has failed to furnish evidence such as delivery challans, transportation details, etc. The Assessing Officer held that the onus to prove any expenditure is on the assessee and the assessee did not prove purchases from the parties it was claimed to have been purchased, hence, onus was not discharged by the assessee. Accordingly, the Assessing Officer estimated 15% keeping in mind the principle laid down by the Hon'ble Jurisdictional High Court in H.M. Esufali Abdulali as well as the decision of the Hon’ble Gujarat High Court in Simit P. Sheth, [2013] 356 ITR 451 (Guj.) and made addition of ` 4,42,955 being 15% of the non– genuine purchases worth ` 29,53,032.
Consequent upon the aforesaid estimated addition made by the on account of bogus purchase, the Assessing Officer also initiated penalty proceedings under section 271(1)(c) of the Act separately vide penalty order dated 16th August 2016. The assessee being aggrieved is in further appeal before the learned CIT(A) and contesting the issue related to penalty under section 271(1)(c) of the Act.
The learned CIT(A) deleted the penalty observing that the Assessing Officer cannot impose penalty on the basis of estimated
5 Shri Yusuf Ahmed Solanki addition. The relevant observation of the learned CIT(A) is extracted below for the sake of brevity:–
“6. I have considered the facts of the case and the appellant's submissions. “6.1 The Grounds No 1 & 2 of the appeal are against levying of penalty of Rs. 1,18,200/- u/s 271(1)(c) of the Act. The AO had added of Rs. 4,42,955/- being 15% of non genuine purchase of Rs. 29,53032/- to the total income of the assessee. Subsequently after the order of Honble ÍTAT, the A.O. passed the penalty order u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income and also for concealing the particulars of income by way of bogus claim of expenditure, levying a minimum leviable penalty of Rs. 1,18.200/- being 100% of the tax sought to be evaded. 6.2 The AO had added 15% of total bogus purchases. There are a plethora of court decisions which say that where additions are made on estimation, no penalty u/s 271(1)(c) is leviable, there being no concealment of particulars of income or furnishing of inaccurate particulars of income. In the present case, the purchase had been duly shown by the appellant in its books of account but it could not produce the party from whom the purchase had been made. It is not the case of the A.O. that the impugned purchases have been proved to be bogus conclusively and there were no corresponding sales. In a recent case before the Allahabad High Court in the case of Naresh Chand Agarwal v/s CIT, 357 ITR 0514 (All.), it has been held that: 12. In the instant case, nothing was concealed by the assessee. It was the A. 0. who has rejected the books of account in the second round and applied the 8 percent net profit rate prescribed under Section 44 AO In the instant case, the turnover is more than 40 lacs, so Section 44 AD is not applicable, nonetheless the A.O. has inspired with the provision of Section 44 AD and made the addition by estimating the net profit rate at 8 percent. Rejection of the books of account allowed the A.O. to make the addition on estimate basis. When the addition is made on estimate basis, no penalty under Section 271(1)(c) of the Income Tax Act, can be imposed as per the ratio laid down in the case of C. I. T vs. Arjun Prasad Ajit Kumar, (2008) 214 CTR (All) 355, where it was observed that: Appeal (High Court) Substantial question of law Penalty under 6 Shri Yusuf Ahmed Solanki section 271(1)(c) CIT (A) deleted penalty under section 271(1)(c) on the ground that there being nothing on record that assessee's explanation lacked bona fides, penalty under section 271(1)(c) could not be imposed on the basis of estimating sales and making addition by applying net profit rate Same was rightly sustained by Tribunal and no substantial question of law arises" 6.4 On the similar set of facts, the Hon'ble ITAT, Mumbai has deleted penalty u/s. 271(1)(c) of the Act in ITA no.5566/Mum./ 2015 dated 16.01.2017 in the case of DCIT, Cir 4(2)(2) vs. M/s. Manohar Manak Alloys P. Ltd. On the same lines, the Hon'ble ITAT Mumbai in Mum./2013 dated 08.07.2015 in the case of M/s.Yashraj Films P. Ltd. vs. The A.O, l.T. Central Circle 29, Mumbai has deleted the penalty u/s. 271(1)(c) of the Act levied on addition made on estimation basis. Likewise, the Hon'ble ITAT, Mumbai in ITA No. 93/Mum./2011 dated 10.04,2015 in the case of DCIT–14(2) vs. M/s. Rishabh lmpex Gulabdas & Co. deleted the penalty u/s. 271(1)(c) of the Act levied on addition made on estimation basis. Further, in a recent decision of Delhi ITAT in the case of Shruti Fastners Ltd. vs. DCIT (2017) 49 CCH 0183 Del Trib and ITAT Mumbai in the case of Rakeshkumar M. Gupta vs. ITO (2017) 49 CCH 0066 MumTrib, it has been held that where income has been estimated, the appellant cannot be said to have concealed particulars of income or furnished inaccurate particulars of income and therefore, penalty u/s 271(1)(c) was not leviable. 6.5 In the background of the aforesaid discussions and respectfully following the precedents, as above and those relied upon by the appellant, I am of the considered view that the appellant has not concealed the particulars of income and nor has it furnished inaccurate particulars of income, there being are no findings of the AO that the details furnished by the appellant in his return are found to be inaccurate; or erroneous or false. Accordingly, I delete the penalty of Rs.1,18,200/- levied by the AO u/s 271(1)(c) of the Act and the grounds of appeal are Allowed.”
Aggrieved, the Revenue is in appeal before us.
The learned Departmental Representative submitted that the assessee has failed to prove the fact that the corresponding sales have 7 Shri Yusuf Ahmed Solanki been effected which indicate that the suspected hawala parties are non–existent and never supplied any material to the assessee and, hence the purchases made from the said party cannot be genuine. Hence, the Assessing Officer was indeed justified in making addition and consequently imposing penalty under section 271(1)(c) of the Act.
Considered the rival submissions and perused the material on record. As discussed above, the Assessing Officer has made addition on the basis of estimated addition and consequently imposed penalty under section 271(1)(c) of the Act. In our considered opinion, and keeping in view the consistency maintained by this Tribunal in plethora of cases that the provisions of section 271(1)(c) of the Act are not attracted to cases where income of an assessee is assessed on estimate basis and addition is made therein on that basis. In the present case also, the facts are similar and hence no penalty ought to have been levied by the Assessing Officer. Even otherwise also, the Revenue has not adduced any cogent material before us to demonstrate that the order passed by the learned CIT(A) deleting the penalty imposed by the Assessing Officer under section 271(1)(c) of the Act is void ab initio. Consequently, in view of the aforesaid, we do not find any legal infirmity in the order passed by the learned CIT(A) warranting us to interfere in his order as such. The Grounds raised by the Revenue are dismissed.
8 Shri Yusuf Ahmed Solanki
In the net result, Revenue’s appeal is dismissed. Order pronounced in the open court on 08.07.2021